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Getting Ready for a World Transformed

Author: Charles A. Kupchan
November 2012
Neue Zurcher Zeitung

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First published in German in Neue ZŁrcher Zeitung

The global distribution of power is fast changing. Europe and the United States, which for some two centuries have together dominated the global landscape, are ceding power and influence to China, India, Brazil, and other emerging powers. The implications of this continuing redistribution of global power will be magnified by the fact that rising nations are forging their own brands of governance and capitalism, not embracing the political and economic norms associated with the "Western way." The twenty-first century will not belong to Europe, the United States, China, or anyone else; it will be no one's world.

As they look ahead, Western democracies thus face the prospect of a world transformed. Their global sway is on the wane. Their brand of modernity – liberal democracy, industrial capitalism, and secular nationalism – will have to compete with other political and economic models, including state capitalism in China and Russia, political Islam in the Middle East, and left-wing populism in Latin America. If the West is to succeed in adjusting to these changes and anchoring the quickening turn in global affairs, it will have to reclaim its economic health and recover its political vitality – not easy tasks when Europe is being pulled apart by its debt crisis and the United States is virtually paralyzed by partisan polarization.

The next few decades will bring a complete overhaul of the global pecking order. During the Cold War, the Western allies accounted for more than two-thirds of global output. Now they represent about half of output—and soon much less. As of 2010, four of the top five economies in the world were still from the developed world (the United States, Japan, Germany, and France). From the developing world, only China made the grade, occupying second place. By 2050, according to Goldman Sachs, four of the top five economies will come from the developing world (China, India, Brazil, and Russia). From today's developed world, only the United States will make the cut; it will rank second, and its economy will be about half the size of China's.

This leveling in the international distribution of power is poised to unfold quite quickly. The World Bank predicts that the U.S. dollar will lose its global dominance by 2025 as the dollar, euro, and China's renminbi become co-equals in a "multi-currency" monetary system. Goldman Sachs projects that the collective economic output of the top four developing countries—Brazil, China, India, and Russia—will match that of the G-7 countries by 2032.

This reallocation of global wealth will result primarily from the rise of "the rest," not the absolute decline of the West. Indeed, a combination of economic resilience and military superiority will keep the United States at or near the top of the pecking order for years to come. And as long as the European Union holds together, it will remain one of the world's main centers of commerce and investment for the foreseeable future.

Nonetheless, the West is losing the hegemonic position that it has long enjoyed. History makes clear that such transitions in the distribution of global power are dangerous; they usually bring with them instability and, not infrequently, great-power war. A defining strategic challenge of the twenty-first century will be managing this transition and ensuring that it occurs peacefully.

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The West will have to adapt not just to the loss of its material primacy, but also to its diminishing ideological dominance. Rather than following the West's path of development and obediently accepting their place in the liberal international order erected by liberal democracies after World War II, rising nations are fashioning their own versions of modernity and pushing back against the West's ideological ambitions. Efforts to manage the coming turn in global affairs will thus take place in a world that is increasingly diverse and unwieldy.

If Western leaders remain blind to this new reality and continue to expect conformity to Western values, they will not only misunderstand emerging powers, but also alienate the many countries tired of being herded toward Western standards of governance. Developing nations are fast acquiring the economic and political wherewithal to consolidate brands of modernity that represent durable alternatives to the West's.

The last thirty years of Chinese development, for example, look nothing like the path followed by Europe and North America. The West's ascent was led by its middle class, which overturned absolute monarchy, insisted on a separation of church and state, and unleashed the entrepreneurial and technological potential vital to the Industrial Revolution. In contrast, the authoritarian Chinese state has won over its middle class, and with reason: its economy outperforms those of Western competitors, enriching its bourgeoisie and lifting hundreds of millions out of poverty.

Moreover, in today's fast and fluid global economy, the control afforded by state capitalism has its distinct advantages. China – in no small part because it has retained control over policy instruments abandoned by liberal states – has proved quite adept at taking advantage of globalization's benefits while limiting its liabilities. It should be no surprise that Russia, Vietnam and others are following China's lead.

The Middle East is similarly set to confound expectations of political conformity. Participatory politics may be arriving in the region, but most of the Muslim world recognizes no distinction between the realms of the sacred and the secular; mosque and state are inseparable, ensuring that political Islam is returning as coercive regimes fall. A poll last year revealed that nearly two-thirds of Egyptians want civil law to adhere strictly to the Koran, one of the main reasons Islamists have prevailed in the country's parliamentary and presidential elections.

And Egypt is the rule, not the exception. If nothing else, the Arab Spring has shown that democratization does not equal Westernization, and that it is past time for Europe and the United States to rethink their longstanding alignment with the region's secular parties.

True, rising powers like India and Brazil are stable, secular democracies that appear to be hewing closely to the Western model. But these countries have democratized while their populations consist mainly of the urban and rural poor, not the middle class. As a result, both nations have embraced a left-wing populism wary of free markets and of representative institutions that seem to deliver benefits only to a privileged elite.

Rising democracies are also following their own paths on foreign policy. India, for example, has demonstrated pronounced ambivalence toward U.S. efforts to make it a strategic partner. New Delhi is at odds with Washington on issues ranging from Afghanistan to climate change, and it has been deepening commercial ties with Iran just as the United States and Europe have been tightening sanctions. Standing up to the West still holds cachet in India and Brazil, one reason New Delhi and BrasŪlia line up with Washington less than twenty-five percent of the time at the United Nations.

Europe and the United States have long presumed that the world's democracies will as a matter of course ally themselves with the West; common values supposedly mean common interests. But if India and Brazil are any indication, even rising powers that are stable democracies will chart their own courses, expediting the arrival of a world that no longer plays by Western rules.

The twenty-first century will not be the first time the world's major powers embraced quite different models of governance and commerce: during the seventeenth century, the Holy Roman Empire, Ottoman Empire, Mughal Empire, Qing Dynasty and Tokugawa Shogunate each ran its affairs according to its own distinct rules and culture. But these powers were largely self-contained; they interacted little and thus had no need to agree on a set of common rules to guide their relations.

This century, in contrast, will be the first time in history in which multiple versions of order and modernity coexist in an interconnected world; no longer will the West anchor globalization. Multiple power centers, and the competing models they represent, will vie on a more level playing field. Effective global governance will require forging common ground amid an equalizing distribution of power and rising ideological diversity.

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If the West is to have the political wherewithal to manage effectively this tectonic shift in global politics, it will have to recover from the crisis of democratic governance plaguing both sides of the Atlantic. At stake is not just the ability of Europe and the United States to shepherd this unfolding transition, but also their capacity to ensure that their liberal and democratic version of modernity retains its global allure as it competes with alternative models.

It is not coincidental that Europe and the United States are simultaneously experiencing political dysfunction. This crisis of governability, although it has multiple causes, is first and foremost the consequence of globalization's socioeconomic impact on the world's leading democracies.
Globalization may be fueling the rise of the rest, but it is also taking a toll on the West.

De-industrialization and outsourcing, global trade and fiscal imbalances, excess capital and credit and asset bubbles—these effects of globalization are confronting democratic electorates with hardships and insecurity not experienced for generations. The distress stemming from the economic crisis that began in 2008 is particularly acute, but the underlying problems began much earlier. For the better part of two decades, middle-class wages in the world's leading democracies have been stagnant, and economic inequality has been rising sharply as globalization handsomely rewards its winners – but leaves its many losers behind.

These trends are not temporary by-products of the business cycle. Nor are insufficient regulation of the financial sector, tax cuts amid expensive wars, or other errant policies the main cause. Instead, stagnant wages and rising inequality are primarily a consequence of the integration of billions of low-wage workers into the global economy and increases in productivity stemming from the application of information technology to the manufacturing sector. Global capacity therefore far outstrips demand, hurting workers in the high-wage economies of the industrialized West.

Dislocation and disaffection among Western electorates are magnified by globalization's intensification of transnational threats, such as international crime, terrorism, and environmental degradation. Poppy cultivation in Afghanistan, tribal rivalries in Yemen, and deforestation in Indonesia all have worldwide effects. In addition, porous borders and unwanted immigration reinforce the sense among Western voters that they are being regularly exposed to uncontrolled intrusions from abroad. It speaks volumes that the United States has been building fences along its boundary with Mexico and that Europeans have been tightening frontier patrols; globalization is ironically bringing borders back to life.

Western democracies are also being buffeted by the socioeconomic effects of digital technology and the information revolution. Particularly in the United States, the proliferation of the Internet and cable news channels is fueling ideological polarization, not more informed and deliberative debate. The rising cost of media-driven campaigns increases the influence wielded by donors, advantaging special interests and angering the broader electorate. Partisan mobilization is reinforcing regional cleavages, widening the ideological distance between America's liberal northeast and the more conservative south. The same factors have been contributing to strained relations between Belgium's French-speaking Walloons and Dutch-speaking Flemish, and fueling calls for more autonomy among Spain's head-strong regions.

Voters confronted with economic duress, social dislocation, and political division look to their elected representatives for help. But just as globalization is fueling this pressing demand for responsive governance, it is also ensuring that its provision is in desperately short supply. For three main reasons, governments in the industrialized West have entered a period of pronounced ineffectiveness.

First, globalization has made many of the traditional policy tools used by liberal democracies much blunter instruments. Washington has regularly turned to fiscal and monetary policy to modulate economic performance. But in the midst of global competition and unprecedented debt, the U.S. economy seems all but immune to injections of stimulus spending or the Federal Reserve's latest moves on interest rates. The scope and speed of international markets mean that decisions and developments elsewhere – Beijing's intransigence on the value of the yuan, an increase in the quality of Hyundai's latest models, Europe's sluggish response to its financial crisis, the actions of investors and ratings agencies – outweigh decisions taken in Washington. Europe's democracies long relied on monetary policy to adjust to fluctuations in national economic performance. But they gave up that option when they joined the eurozone. In a globalized world, democracies simply have fewer effective policy tools at their disposal and therefore less control over outcomes.

Second, many of the problems that Western electorates are asking their governments to solve require a level of international cooperation that is unattainable. The diffusion of power from the West to the rest means that there are today many new cooks in the kitchen; effective action no longer rests primarily on collaboration among like-minded democracies. Instead, it depends on cooperation among a much larger and more diverse circle of states. Europe and the United States now look to the G20, not the cozy G-7, to rebalance the international economy. But consensus is elusive among nations that are at different stages of development and embrace divergent approaches to economic governance. Challenges like curbing global warming or ending the bloodshed in Syria depend on a collective effort that is well beyond reach.

Third, democracies can be nimble and responsive when their electorates are content and enjoy a consensus born of rising expectations, but they are clumsy and sluggish when their citizens are downcast and divided. Moreover, democracies are very good at distributing benefits, but appear to be poorly suited when it comes to apportioning sacrifice. The policy challenges facing the United States and Europe are difficult enough on their own merits. But they become all but insurmountable when governments face distrustful publics, legislative gridlock, and special interests vying for shrinking resources. The failure of democracies to deliver effective policies only makes their electorates more disillusioned, leaving their governments more vulnerable and hapless. This self-reinforcing cycle is producing an ever-widening chasm between the demand for good governance and its supply.

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The crisis of governability is playing out differently in Europe and the United States. Europe's main challenge stems from the renationalization of its politics. Publics have been revolting against the double dislocations of European integration and globalization. As a consequence, the EU's member states have been busily clawing back the prerogatives of sovereignty, threatening the project of political and economic integration set in motion after World War II.

Economic conditions are the root of the problem. Over the past two decades, middle class incomes in most major European economies have been falling while inequality has been rising. The austerity stemming from the ongoing debt crisis in the eurozone has only made matters worse. Youth unemployment in Spain has topped fifty percent. Even in Germany, the EU's premier economy, the ranks of the middle class contracted by thirteen percent between 2000 and 2008. Those who slip through the cracks find a fraying safety net beneath them; Europe's comfortable welfare systems, which have become unsustainable in the face of global competition, are being dramatically scaled back.

Europe's aging population makes immigration an economic necessity. But the lack of progress in integrating Muslim immigrants into the social mainstream has intensified discomfort over the EU's open internal borders. Far-right parties have been the beneficiaries of this anxiety, and their hard-edged nationalism targets not only immigrants, but also the EU. Generational change is taking its own toll on popular enthusiasm for European integration. Europeans with memories of World War II see the EU as Europe's escape-route from its bloody past. But younger Europeans have no past from which they flee. Whereas their elders viewed the European project as an article of faith, current leaders and electorates tend to assess the EU through a cold—and often negative—valuation of costs and benefits.

Europe has arrived at a make-or-break moment. With its member states hemmed in by indignant electorates, the EU has moved tortuously toward a workable plan for salvaging the euro. Europe's slow and timid pace fits poorly with the impatience of global markets, exacerbating and prolonging its financial crisis. The collective governance that the EU desperately needs to thrive in a globalized world rests uneasily with a political street that risks becoming decidedly hostile to the European project.

Europe's institutions could descend to the level of its politics, which would effectively reduce the EU to little more than trade bloc. Alternatively, national politics could again be infused with a European calling, which would breathe new legitimacy into a union at risk. The latter outcome is much preferable, but it will require leadership and resolve that, at least for now, are nowhere to be found. In the meantime, an introverted and fragmented Europe cuts an ever-shrinking figure on the global stage.

On the other side of the Atlantic, partisan confrontation is paralyzing American politics. The underlying cause is the poor state of the U.S. economy. Since 2008, many Americans have lost their houses, jobs, and retirement savings. And these setbacks come on the heels of back-to-back decades of stagnation in middle-class wages. Over the past ten years, average household income in the United States has fallen by over ten percent. In the meantime, income inequality has been steadily rising, making America the most unequal country in the industrialized world. As of 2010, the richest one percent of Americans accounted for almost twenty-five percent of all income.

The primary source of the declining fortunes of the American worker is global competition; jobs have been heading overseas. In addition, many of the most competitive companies in the digital economy do not have long coattails. Facebook's estimated value has been around $70 billion, and it employs roughly 2,000 workers, while General Motors, valued at $35 billion, has 77,000 employees in the United States and 208,000 worldwide. The wealth of America's cutting-edge companies is not trickling down to the middle class.

These harsh economic realities are helping to revive ideological and partisan cleavages long muted by the nation's rising economic fortunes. During the decades after World War II, a broadly shared prosperity pulled Democrats and Republicans toward the political center. But today Capitol Hill is largely devoid of both centrists and bipartisanship; Democrats campaign for more stimulus, relief for the unemployed, and taxes on the rich, while Republicans clamor for radical cuts in the size and cost of government. That ideological cleavages often run along regional lines makes bipartisan compromise all the more elusive. Exacerbating the hollowing out of the center are a broken campaign finance system, partisan redistricting, and broadcast media that provoke more than inform.

The resulting polarization is tying the country in knots. President Obama realized as much, which is why he entered office promising to be a post-partisan president. But the failure of Obama's best efforts to revive the economy and restore bipartisan cooperation has exposed the systemic nature of the nation's economic and political dysfunction. His $787 billion stimulus, passed without the support of single House Republican, was unable to resuscitate an economy plagued by debt, a deficit of middle-class jobs, and the global slowdown. Since the Republicans gained control of the House in 2010, partisan confrontation has stood in the way of progress on nearly every issue. Bills to promote economic growth either fail to pass or are so watered down that they have little impact. Immigration reform and legislation to curb global warming are not even on the table. On foreign policy, Democrats and Republicans regularly lock horns, and cleavages within the parties—for example, between Republican neoconservatives and Tea Party isolationists—can be as debilitating as clashes across partisan lines.

Ineffective governance, combined with daily doses of partisan bile, has pushed public approval of Congress to historic lows. Spreading frustration has spawned the Occupy Wall Street movement – the first sustained bout of public protest since the Vietnam War. The electorate's discontent only deepens the challenges of governance as vulnerable politicians cater to the narrow interests of the party base and the nation's political system loses what little wind it has in it sails. The conduct of U.S. statecraft is hardly immune to these domestic travails. Funding for diplomacy, foreign assistance, and defense are all on the chopping block, and Americans in historic numbers believe that it is time for the country to "mind its own business" and focus on domestic problems. Duress and division at home are hampering responsible leadership abroad.

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It is not by chance that the West's crisis of governability coincides with new political strength among rising powers; economic and political vigor is passing from the core to the periphery of the international system. And while the world's most open states are experiencing a loss of control as they integrate into a globalized world, illiberal states like China are deliberately keeping a much tighter grip on their societies through centralized decision making, censorship of the media, state-supervised markets, and the regulation of financial flows.

The destabilizing potential of this unfolding transition in global power would be significantly magnified if the leading democracies continue to lose their luster as developing countries chart their rise. Conversely, a realignment of the international pecking order would likely be more orderly if the Western democracies recoup and provide purposeful leadership. Accordingly, it is more vital than ever for the West to reclaim economic vitality and breathe new life into its democratic institutions.

What is needed is nothing less than a compelling twenty-first-century answer to the fundamental tensions among democracy, capitalism, and globalization. This new political agenda should aim

to reassert popular control over political economy, directing state action toward effective responses to both the economic realities of global markets and the demands of mass societies for an equitable distribution of rewards and sacrifices.

The West should aim at three broad objectives to restore its political health. First, the Western democracies must individually and collectively embrace strategies of economic renewal that go well beyond business as usual. When up against China's brand of state capitalism and the potent forces of globalization, Europe and the United States need to engage in strategic economic planning on an unprecedented scale. Long-range blueprints and large-scale investment in jobs, infrastructure, education, and research will be required to revamp economies that are in the midst of far-reaching structural change.

Second, leaders across the West should rally behind an agenda of progressive populism – one intended to channel electoral discontent toward constructive ends and enable centrist voters to prevail against special interests and the political extremes. Elites must ensure that mass publics once again have confidence in the ability of democratic institutions to produce a broadly shared prosperity. A progressive activism and the mobilization of the political center offer the best hope of restoring vitality and credibility to democratic politics. President Barak Obama seems to have discovered the merits of this approach – one of the main reasons he appears headed toward reelection.

Finally, Western governments must lead their electorates away from the temptation to turn inward. Amid the economic downturn and the lengthy and inconclusive wars in Afghanistan and Iraq, Americans are clamoring for a respite from geopolitical burdens. Europeans are not only stepping back from integration with each other, but also with the world beyond. To be sure, restoring fiscal solvency in the United States requires cuts to defense spending and a strategic retrenchment to match. But neither America nor its European allies can afford a precipitous retreat.

The Atlantic partnership faces an uncertain and unsettling era in global politics as power shifts from the West to emerging powers. The disruptions that will inevitably accompany this tectonic change can be most effectively managed by coherent teamwork between the United States and Europe. Preparation for this task starts at home; the United States and Europe need to restore economic and political solvency if they are to have the power and purpose to anchor the coming transition. The Atlantic partners have more than enough common ground and common cause. What remains to be seen is whether they have the common wherewithal to act on their shared interests and values.

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Charles A. Kupchan is Professor of International Affairs at Georgetown University and Whitney Shepardson Senior Fellow at the Council on Foreign Relations. He is the author of No One's World: The West, the Rising Rest, and the Coming Global Turn (Oxford University Press, 2012).

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